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Oversold Stocks to Buy and Hold for Long-Term Returns

 If you wish to capture long-term returns, keep reading to discover the top oversold stocks to buy in 2022. 
The post Oversold Stocks to Buy and Hold…

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Stocks are bouncing today after a miserable start to the week. Despite all the doom and gloom talk, there are a few oversold stocks to buy this year with the potential for explosive long-term returns.

With the Federal Reserve raising interest rates to tame the overheated economy, the stock market is giving back much of its returns since the pandemic. The fallout comes as economic growth slows, inflation continues picking up, and the war in Ukraine pressures commodity prices.

The rollercoaster ride expects to continue, with analysts now predicting less economic growth than previously forecast. With this in mind, higher inflation lessens consumers’ ability to buy.

Furthermore, corporate giants like Amazon (Nasdaq: AMZN) and Google (Nasdaq: GOOGL), seeing profits slow, could spell trouble ahead. If you wish to capture long-term returns, keep reading to discover the top oversold stocks to buy in 2022.

Top Oversold Stocks to Buy in 2022

We are seeing a different market today than what we have experienced in the past few years. Then again, financial markets are constantly changing. Investors process new information as it becomes available and then make decisions based on expectations.

Currently, the expectations are incredibly low. The Conference Board Consumer Confident Index inched down again in April after a slight boost in March.

As a result, many stock market leaders are losing significant value as assets continue selling off. Below is a snapshot of how brutal the selloff is in 2022.

  • S&P 500 Index (SPX): 16%
  • Nasdaq 100 Index (NDX): 25%
  • Dow Jones Industrial Average (DJI): 12%

As you can see, the market is not leaving much room for growth this year. But there are still a few opportunities to make money. For example, oil stocks lead the market, with the Energy Select SPDR Fund (NYSE: XLE) up 42% YTD.

As the market rotates, new leaders emerge, presenting trading opportunities. Yet rarely does the chance to buy long-term leaders at discount prices happen.

With the market down significantly from its highs, investor emotion is high. The CNN Fear & Greed Index shows extreme fear. It may be an opportunity to buy leaders for long-term returns.

I’m searching for industry leaders with growing earnings and strong fundamentals to find long-term growth opportunities. Below are a few of the top oversold stocks to buy in 2022.

No. 4 Disney (NYSE: DIS)

  • YTD Return: -32%
  • EPS Growth YOY: 231%
  • Revenue Growth YOY: 23%

After the pandemic seemingly decimated Disney’s business, the house of mouse showed how resilient the company is. Moreover, Disney is transforming into a digital media powerhouse with over 205 million subscribers across its streaming portfolio.

Yet Disney’s theme parks continue to see a solid recovery in the U.S. That said, per capita spending rose over 40% compared to 2019 as the brand favorite zeroes in on the customer experience.

At the same time, the company is pouring money into park renovations as it gears up for its 100th anniversary. New attractions like Guardians of the Galaxy: Cosmic Rewind should continue attracting new visitors. Finally, Disney’s substantial catalog of top-tier brands and characters will continue carrying the company between licensing and new content.

No. 3 Target (NYSE: TGT)

  • YTD Return: -3%
  • EPS Growth YOY: 19%
  • Revenue Growth YOY: 13%

Although Target is only down 5% in 2022, TGT stock is down over 20% from its ATH, near $278 in November. With this in mind, Target has a rich history of rewarding shareholders, with 219 consecutive dividends paid (since the company became public) since 1967.

At the same time, the supermarket favorite is rapidly growing its revenue streams while focusing on future growth. For example, Target Plus is the company’s expanding 3rd party marketplace.

Target’s superior growth strategy is paying off while the company maintains a strong balance sheet. With new revenue streams and the ability to capture shoppers with the latest fashion trends, Target should continue maintaining its momentum.

Finally, if you think Target stock is hardly oversold, you may be right. But consumer discretionary is one of the worst-performing sectors this year. With this in mind, Target is holding its own as investors look to lessen risk.

Keep reading to find the top oversold stocks to buy this year.

No. 2 Coinbase (Nasdaq: COIN)

  • YTD Return: -70%
  • EPS Growth YOY: -165%
  • Revenue Growth YOY: 150%

Investors shunned Coinbase stock after releasing its first-quarter earnings earlier this week. To explain, Coinbase’s latest 10Q includes new text suggesting that they may hold users’ crypto in the event of bankruptcy.

However, CEO of Coinbase Brian Armstrong clarified the comments on his Twitter. Brians says, “We have no risk of bankruptcy,” before adding a new SEC requirement for publicly held crypto companies as the reason for adding the note.

Meanwhile, COIN shares accelerated their decline on heavy selling pressure. With Coinbase stock down 83% from its IPO price, you can now buy shares close to the same value as private investors. For example, after Coinbase’s Series E equity round in 2018, the company was valued at $8B. Currently, Coinbase’s market cap is around $13B. The risk to reward is favorable for a long-term bet on crypto at these prices.

Although cryptocurrency has lost hundreds of billions in value this past month, Coinbase is one of the largest exchanges with diverse offerings. On top of this, the company is one of the easiest ways for users to get involved with crypto.

At the same time, if you are investing in Coinbase, know it may take time for your investment to pay off. The firm does not expect profits in the short term as it aggressively pursues growth to position itself for the future.

No. 1 Applied Materials (Nasdaq: AMAT)

  • YTD Return: -30%
  • EPS Growth YOY: 36%
  • Revenue Growth YOY: 21%

With demand for semiconductors expecting to skyrocket in the next several years, Applied Materials is positioned to grow alongside the market.

Applied Materials plays a critical role in the computer chip market as one of the largest producers of semiconductor equipment. For example, companies stepping up to fill the unmet chip demand will need machines to make them.

In 2021, the company set record revenue, EPS, and operating income. Furthermore, AMAT produced record cash from operations while finishing the year with its highest backlog ever. With this in mind, the company is uniquely positioned to continue growing with over 15,700 patents spanning a broad set of uses.

Lastly, with AM shifting to a subscription business model and heavy demand for its products, the growth is expected to continue. Applied Materials is down 33% from its ATH, making it one of the top oversold stocks to buy for long-term growth.

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Economics

Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

A week ago, following dismal guidance by Walmart,…

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Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

A week ago, following dismal guidance by Walmart, Target indicated that it is seeing a shift in the consumer wallet away from the pandemic purchases and into reopening purchases - including apparel - and the pace of this shift caught some retailers off guard on inventory. WMT, COST, and TGT all saw their stocks fall sharply last week as investor concerns around a US consumer slowdown mounted and investors reconsidered just where, if anywhere, you can play "defense" in the current market.

But as Goldman's Chris Hussey writes today, this week, results from companies like DKS, Macy's, JWN, WSM, DLTR, and DG painted a decidedly different picture.

Deep discount retailers Dollar Tree - or rather Dollar 25 Tree - and Dollar General both posted strong results and DLTR raised top-line guidance.

Which isn't surprising: as we discussed in "Middle Class Is Shutting Down As Spending By The Rich Remains Robust" when consumers are trading down - as they are doing now due to Biden's runaway inflation - dollar stores see more business.

As a result, Dollar Tree surged as much as 20% on Thursday, the biggest intraday move since October 2020. Evercore ISI said Dollar Tree's move to a "$1.25 price point" last November from $1 “came in the nick of time" adding that "given the broad-based inflationary cost pressures, the 25% price increase drove material sales and margin upside for both the namesake division and the total company," wrote analyst Michael Montani who also said that while freight, transport, and labor headwinds are real, some of the pressure cited by Target last week was likely company specific.

The analyst concluded that the read-across from DG and DLTR is “favorable,” and it seems that the low-end consumer is “hanging in better than initially thought.” Or rather, the middle-class is getting crushed and it has no choice but to trade down to the cheapest retail outlets.

And with countless shorts having piled up and getting massively squeezed, the S&P 500 Consumer Discretionary Index today has risen as much as 5.6%, its best day since April 2020, as optimism on the health of the consumer returns following a string of better-than-expected earnings reports from retailers.

Top performers in the S5COND index include Dollar Tree, Dollar General, Norwegian Cruise, Caesars Entertainment and Carnival; the Discretionary Index is on pace for its best week since March 18, when the group climbed 9.3%; the index sank 7.4% as Walmart and Target reports spooked investors. The index is still down almost 30% YTD.

"Retail earnings are bullish.... with four blow-outs,” said Vital Knowledge’s Adam Crisafulli, referring to quarterly reports from Williams-Sonoma, Macy’s, Dollar General, and Dollar Tree.  “The overall retail industry is experiencing stark changes and the market is incorrectly conflating these shifts with underlying demand weakness when the actual health of the consumer is much better than it seems,” Crisafulli says, although there are many - this website included - who wholeheartedly disagree with his optimistic view of the US consumer.

Remarkably, thanks to today’s rally, even Burlington Stores, which sank as much as 12% in premarket on disappointing results, is trading up as much as 11% and some say, the rally helped reverse the earlier tumble in NVDA shares.

The discretionary group is also getting a boost from airline operators Southwest and JetBlue, helping travel-related names, while on the economic front, better-than-expected personal consumption (for the revised Q1 GDP print). and jobless claims may be adding to the bullishness according to Bloomberg.

Tyler Durden Thu, 05/26/2022 - 15:00

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Stocks

Restaurants’ Share Of Food-Dollar Grows To Record 54.9% In April

Restaurants’ Share Of Food-Dollar Grows To Record 54.9% In April

By Nation’s Restaurant News

Restaurants continued to increase their share…

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Restaurants' Share Of Food-Dollar Grows To Record 54.9% In April

By Nation's Restaurant News

Restaurants continued to increase their share of spending in April, reaching 54.9% of the food dollar, according to U.S. Census data released Tuesday. That was a 260-basis-point increase from April last year, when the share was 52.3%, said analyst Mark Kalinowski, president and CEO of New Jersey-based Kalinowski Equity Research LLC.

“Even more impressively, as best as we can tell, this 54.9% market share figure for April 2022 is an all-time monthly high for the U.S. restaurant industry,” Kalinowski said in a note released Tuesday about the April U.S. Census data.

Kalinowski said restaurants, especially multi-unit public chains, were increasing prices but at a more modest rate than retail groceries.

“The key takeaway from this is you have a lot of menu prices going up in the restaurant industry,” he said in an interview.

“And, of course, the fear anytime you're raising your menu prices is that customers will trade down, but that hasn’t happened.”

Kalinowski noted that while restaurant brands were increasing prices, the rate of hikes was less than in grocery prices.

“If you need to eat — and I haven't yet met the person who didn't need to eat — you have got to buy the food from some place unless you're growing it yourself or you have a neighbor who grows it,” he said. “The fact is the restaurant industry offers a lot of convenience. It offers experiences that the grocery stores can't match.

“It is so firmly a part of the American fabric now that Americans don't necessarily want to cut their restaurant spending,” Kalinowski said.

The analyst also noted that larger restaurant brands were being very calculated in how they were raising prices to offset their increased commodity and labor costs.

For example, Kalinowski noted, “McDonald's looks at the food at home inflation and takes that into account with their menu pricing. I would imagine there's definitely a lot of other chains out there that have gotten a little more sophisticated with how they take their menu pricing.”

Those judicious price increases are easier for large, multi-unit chains to institute than for independent restaurants, he noted.

“Independents lack the scale advantages that large chains have,” he said, “so part of the challenge for independence is, in the time of just big commodity cost inflation, how do you battle that. That's not saying it's easy for the large chains — it's hard on everybody just about.”

Over the past two years, he added, the industry has seen the largest shift toward big restaurant brands who are taking increased shares of what is a larger pie.

Census data for April calculated U.S. food services and drinking places posted $83.741 billion in sales, as compared to the April 2022 figure for U.S. grocery stores of $68.906 billion.

Kalinowski said it was intriguing that combined foodservice and drinking place sales with grocery sales had increased significantly from pre-pandemic levels.

“There seems to be meaningfully more spending on food/beverages than there was pre-pandemic,” he said. “The April 2022 combined number of $152.6 billion is 26.4% larger than the April 2019 combined number of $120.7 billion.”

This past April marked the 12th consecutive month for which that number was up more than 10% over the corresponding pre-pandemic monthly number, Kalinowski noted.

“We continue to look for restaurants’ market share in full-year 2022 to be at least one full percentage point higher than the full-year 2021 figure of [positive] 52.7%,” he said.

“All in all, this is good news for restaurant stocks — which tend to be comprised of the very largest restaurant concepts in most cases,” Kalinowski said in his note. “Large concepts have fared better than smaller chains and independents during the pandemic, creating the largest opportunity in decades for market-share gains within the restaurant industry favoring large chains.”

Tyler Durden Thu, 05/26/2022 - 13:40

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Economics

‘Insiders’ Are Buying This Dip

‘Insiders’ Are Buying This Dip

The Nasdaq is in the middle of its worst drawdown since the Lehman crisis and the Dow just suffered its longest…

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'Insiders' Are Buying This Dip

The Nasdaq is in the middle of its worst drawdown since the Lehman crisis and the Dow just suffered its longest losing streak in 99 years.

As that is happening, faith in The Fed is crumbling as Powell faces the central bankers' nemesis of stagflation... and all in an election year (threatening the confidence in The Fed's independence should it falter from its path of uber-hawkishness).

According to the latest BofA Fund Manager Survey, the grim 'market' has sent investors reeling with those equity funds tracked by EPFR Global suffering six straight weeks of outflows (the longest stretch of withdrawals since 2019), and cash levels among investors soaring to their highest level since September 2001.

Additionally, the BofA survey also showed that technology stocks are in the 'biggest short' since 2006.

The 'proverbial' dip-buyer appears to have abandoned hope as the strike on any Fed Put (at which Powell will fold like a cheap lawn chair over the pain) gets marked lower and lower.

But...

There is one group apparently, that is willing to dip a toe in the capital market deadpool - corporate insiders.

As Bloomberg reports, according to data compiled by the Washington Service, more than 1,100 corporate executives and officers have snapped up shares of their own firms in May, poised to exceed the number of sellers for the first month since March 2020 marked the pandemic trough two years ago.

The ratio has surged to 1.04 this month from 0.43 in April.

Notably, the insider buy-sell ratio also jumped in August 2015 and late 2018, with the former preceding a market bottom and the latter coinciding with one.

“It is a function of investors functioning at the '30,000 foot level' or 'macro' whereas insiders are functioning at the 'boots on the ground', company-fundamentals level,” said Craig Callahan, chief executive officer at Icon Advisers Inc. and author of 'Unloved Bull Markets'.

“We believe the company-fundamentals view is usually correct.”

Nicholas Colas, co-founder of DataTrek Research, is not as confident:

“All we know for sure is that the valuation of any stock or the entire market hinges on whether investor confidence in future cash flows is rising or falling. At present, confidence is falling,” he wrote in a recent note.

“This is not because stocks expect a recession. Rather, it is because the range of possible S&P 500 earnings power runs in a wide channel and can become wider still.”

Starbucks' Interim Chief Executive Officer Howard Schultz and Intel CEO Patrick Gelsinger are among corporate insiders who scooped up their own stock amid the latest market rout that took the S&P 500 to the brink of a bear market.

With their share prices plunging, we can't help but wonder if this 'buying' is mere virtue-signaling so that the board won't fire them for their absymal loss of market cap? 

Tyler Durden Thu, 05/26/2022 - 13:20

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